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Cisco announced Tuesday that it had agreed to acquire Starent Networks, a Massachussetts-based maker of equipment that allows wireless carriers to connect their networks to the Internet.
A growing multitude of people using devices like RIM's Blackberry, Apple's iPhone and Palm Pre, or the various smartphones based on Google Android technology, figure to be connecting through Cisco equipment whenever they access Web data. Cisco projects that that global mobile data traffic is expected to more than double every year through 2013.
Executives at both Cisco and Starent say the companies common vision and complementary technologies would enchance the mobile Internet experience and market opportunities for Cisco's clientele of service providers. The resulting network would serve as a platform for "for service providers to launch, deliver and monetize the next generation of mobile multimedia applications and services," said Pankaj Patel, Cisco's general manager of the service provider business.
It was the second major deal announced by Cisco in two weeks, following its $3 billion purchase of Tandberg, an Norwegian maker of video-conferencing systems.
Cisco, which started its spending spree with more than $35 billion in cash on its balance sheets, has grown from humble roots at Stanford University into the globe's leading networking company in part through its acquisition and integration of more than 100 tech companies over its 25-year history.
The Starent deal came after Cisco CEO John Chambers told investors to expect Cisco to actively search for acquisition targets, stoking speculation that it could make deals to complement its fledgling smart-grid initiative or its growing interest in consumer electronics. "Where Will Cisco's Buying Binge End?" asked a rhetorical headline over one stock pundit's post on Tuesday.
A stabilizing economy has contributed to a recent consolidation in the tech sector, as corporate chieftains become more comfortable with relative values. Dell, Xerox and Adobe have also made billion-dollar acquisitions in recent weeks. In July, Santa Clara-based Data Domain agreed to a $2.4 billion purchase by EMC.
Smaller deals are getting done as well. Barracuda Networks, a Campbell-based enterprise security company, on Tuesday announced its purchase of Atlanta-based Purewire. It was Barracuda's fifth acquisition since November 2008. Terms were not disclosed in the deal between private companies.
Cisco agreed to pay $35 per share for Starent, a 21 percent premium to Monday's closing price of $29.03. Starent's board has accepted the offer, and Wall Street's initial reaction was favorable as traders sent Starent stock up 17 percent in early trading and gave Cisco a slight uptick as well.
Under terms of the deal, expected to be completed in the first half of 2010, Starent will become Cisco's new Mobile Internet Technology Group, headed by Starent CEO Ashraf Dahod, within Cisco's Service Provider Business which is led by Patel.
Starent, based in Tewksbury, Mass., was founded in 2000 and completed its initial public offering in 2007. The company has about 1,000 employees worldwide and in 2008 reported revenue of $254.1 million, up 74 percent from the prior year.
The combination "creates a compelling portfolio of products that provides an integrated architecture to offer rich, quality multimedia experiences to mobile subscribers," Dahod said in a press release.
According to Ticonderoga Securities, Starent has a share of about 85 percent in its niche among carriers like Verizon Wireless and Sprint Nextel. Sales have grown roughly 65 percent annually over the last four years.
"We believe Starent's mobile core network solutions fill a gap in Cisco's product portfolio and enhance the company's offering to service providers," Ticonderoga Securities analyst Brian White wrote.
The Associated Press contributed to this report.
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